Every Wednesday, Legg Mason Wood Walker Inc. financial adviser
Jonathan Murray answers e-mail on your investments. To be included
next time, send
your questions.
> From: Beamon, Todd
Sent: Monday, Oct. 21, 2002
To: ‘Murray, Jonathan P.’
Subject: $
Hello, Jonathan:
Someone recently told me that there is a way to take the money I have invested in my mutual fund and use it to buy another property, such as a place on the Atlantic Ocean.
The person claims that he had spoken to his accountant, who said that as long as I rent out this property, I would not have to pay any penalty for cashing in my mutual fund.
Is there any truth to this?
Paul
From: Murray, Jonathan P.
Sent: Tuesday, Oct. 15, 2002
To: Beamon, Todd
Subject: RE: $
Dear Paul:
I am not a tax adviser, but I would get a second opinion from an expert in tax law.
To my knowledge, there is no way to buy a piece of property with mutual-fund assets, unless they are either sold, or borrowed against, or
gifted to a trust — then sold.
Through your broker’s margin department, you
might be able to borrow up to 50 percent of the value of your funds, paying an
interest rate on the loan. That would avoid having to sell your fund shares.
As far as other penalties are concerned, you would need to ascertain whether the fund has no “contingent-deferred sales charges” or “back-end loads”
that would be assessed upon selling. These shares are often coded with the
letter “B” and have a declining back-end surrender charge — the longer you
hold the fund, the lower the surrender charge is.
> From: Beamon, Todd
Sent: Tuesday, Oct. 22, 2002
To: ‘Murray, Jonathan P.’
Subject: $
I’m torn between taking my pension on a monthly basis starting now or taking a cashout and investing it in the market in a diversified portfolio.
I’m 53, and I would not want to use the 72T rule if I decided on a cashout.
The pension would give me a 6.5 percent return on what I would have received as my lump-sum cashout of about $350,000. I also would have a poor-performing 401(k) that I could use to augment the pension further down the road.
I would buy a 25-year, premium-level term insurance policy for my wife should I decide to take the pension.
Any ideas?
John
From: Murray, Jonathan P.
Sent: Tuesday, Oct. 22, 2002
To: Beamon, Todd
Subject: RE: $
Dear John:
Whether to take the pension or the lump sum depends on many factors: How risk-averse are you and your spouse?
A return of 6.5 percent may not seem like much, but at
least it won’t LOSE you money. On the other hand, with the markets having fallen so much, there is a decent chance of a well-diversified, professionally managed portfolio doing better than 6.5 percent over the next 20 years.
And, since you don’t need to tap it yet, any outperformance within the lump-sum rollover gets magnified over time, thanks to tax-deferred
compounding.
Other factors include your health: If you take the pension and die shortly thereafter, the insurance company keeps the remaining money. Sure, you can have your wife continue to receive income after you’ve passed, but you have to pay more for that option.
On the other hand, with a lump-sum rollover, if you were to die tomorrow, your wife or other beneficiary would get 100 percent of the money — not the insurance
company.
This is a VERY big decision for you and your family. It’s your nest egg, that you have worked hard for. I would make sure that you solicit a number of opinions, from financial advisers to accountants to estate lawyers, and make an informed decision.
From: Beamon, Todd
Sent: Monday, Oct. 21, 2002
To: ‘Murray, Jonathan P.’
Subject: $
I desperately need a financial planner, but I am uneasy about just picking one from the telephone book.
What do you suggest?
Martha
From: Murray, Jonathan P.
Sent: Tuesday, Oct. 15, 2002
To: Beamon, Todd
Subject: RE: $
Dear Martha:
Do what you would do when you want to go out to a good restaurant: Ask your friends and family where they go. Find out who’s been pleased, and who hasn’t.
A referral from a trusted source is a valuable way to narrow your list. Ask your CPA and attorney who they would recommend. Don’t limit your search only to “financial planners.”
Perhaps you really don’t need a comprehensive, expensive financial plan. There are some very good financial advisers who are labeled as “stockbrokers,” “accountants,” “bankers” or
“independent advisers.”
> From: Beamon, Todd
Sent: Tuesday, Oct. 22, 2002
To: ‘Murray, Jonathan P.’
Subject: $
Thanks, Jonathan.
Talk to you next week.
